Siemens makes $7.6bn bid for Dresser Rand

Siemens president Joe Kaeser said Dresser-Rand was a perfect fit for his company
Siemens president Joe Kaeser said Dresser-Rand was “a perfect fit” for his company
Credit: Siemens

Siemens has made a friendly takeover bid of $7.6bn (€5.8bn) for US company Dresser-Rand.

Siemens president Joe Kaeser said the American firm was “a perfect fit for the Siemens portfolio” while his Dresser-Rand counterpart Vincent R Volpe Jr said the deal was “a unique opportunity to better serve our clients, employees and shareholders”.

Siemens’ offer price is $83 per common share in cash, or a total transaction value of approximately $7.6bn. Siemens plans to operate Dresser-Rand as the company’s oil and gas business, retaining the Dresser-Rand brand name and its executive leadership team.

In addition, Siemens intends to maintain a significant presence in Houston, Texas, which will be the headquarters location of the oil and gas business of Siemens.

Dresser-Rand manufactures compressors, steam and turbines and engines and is a major player in the power generation sector.

Headquartered in Houston, it has annual revenues of approximately $3bn and around 8100 staff in the US and Europe.

In a statement, Siemens said the acquisition – which is expected to be completed in summer 2015 – “complements Siemens’ existing offerings, notably for the global oil and gas industry and for distributed power generation”. It added that it plans to “realize more than €150m in annual synergies by 2019 as a result of the transaction”.

Kaeser said: “As the premium brand in the global energy infrastructure markets, Dresser-Rand is a perfect fit for the Siemens portfolio. The combined activities will create a world-class provider for the growing oil and gas markets.”

The board of directors at Dresser-Rand has unanimously recommended the offer to its shareholders.

Volpe said: “Given the vision Siemens has for Dresser-Rand as its oil and gas company, and its expressed wishes to build Dresser-Rand’s product and service portfolio with some of the existing Siemens offerings that have previously been marketed separately into the oil and gas space, it is clear that this is a transaction that should create value for clients, as well as for both sets of shareholders, that would not have otherwise been achieved had Dresser-Rand not become part of the Siemens group.

“Simply stated, we see this as a unique opportunity to better serve our clients, employees and shareholders and are pleased to have Dresser-Rand placed in the central role for Siemens as it develops its position in oil and gas.”

Siemens managing board member Lisa Davis said: “Our aim is to become the leading rotating equipment and process system integrator for the oil and gas industry. Dresser-Rand has a strong presence in oil and gas, a reputation for technology leadership and innovation, and a talented and experienced leadership team.

“Our intention is to leverage these strengths by maintaining the existing company and brand name and selectively moving complementary products and services from the existing Siemens portfolio into Dresser-Rand enabling us to offer a much broader range of products, services and solutions.”


China tops renewables investment poll but UK slips down

renewables

China is now the top destination for renewables investment in the world according to an influential poll.

The Asian powerhouse has knocked the US off the top spot in the Renewable Energy Country Attractiveness Index (RECAI), which is compiled each year by consultancy EY and ranks 40 renewables markets on their attractiveness in the eyes of investors.

And while Germany, Japan and Canada maintain their positions in third, fourth and fifth respectively, India comes in at number six at the expense of the UK, which slips down the rankings. Indeed, EY says the UK’s appeal as a destination for renewable energy investment “is now at its lowest level for almost five years as a result of a combination of domestic and international factors”.

The RECAI states that the UK “is currently weighing the impact of a recent consultation on solar subsidies that will see the UK government withdraw Renewables Obligation support for solar projects above 5 MW two years earlier than planned. In addition, the government has already allocated the majority of the funding available to support renewable energy projects through to 2020.”

It adds that the UK and other established renewables markets are bearing the brunt of competition from emerging markets. “India’s new government is proactively overhauling its energy sector to galvanize public and private renewables investment. Brazil, Chile, South Africa and Kenya are developing robust deployment pipelines and consistent policy support, while major project financing in the Netherlands and Israel have prompted a boost for these markets.”

Ben Warren, environmental finance leader at EY, said: “What we are seeing is a ‘perfect storm’ of reasons prompting a fall in the appeal of the UK’s renewables market. The booming UK solar sector, one of only six markets globally to surpass 5 GW of installed capacity, was caught by surprise by the government’s consultation in May. Legal challenges and investor petitions have been launched in response, urging the government to give the sector more time and greater policy stability to compete with conventional fuels.”

On China taking over at the number one slot, Warren said: “China’s government is placing increased emphasis on cleantech as the country battles pollution, ushering in new market opportunities for foreign investors. Aggressive policy targets, an increased focus on consolidation and the roll-out of pilot carbon emissions trading schemes also support the country’s pollution reduction initiatives and reflect cleantech’s strategic economic value.”

Warren warns that Europe “is currently at an inflexion point, striving to become a global sector leader but facing strained infrastructure and supply capabilities.

“The industry must liberate itself from the shackles of the past and go in search of grid parity as the fastest route to secure and affordable energy. The role of policy-makers therefore becomes one of enablement rather than support, and they should be looking to create a level playing field across all energy sources through greater cost transparency.”


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Analysis: is public acceptance a business risk for the nuclear industry?

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nuclear industry

Having spent a day at the World Nuclear Association’s (WNA) annual Symposium, I came away with the view that the nuclear sector is presently focused on two issues: security of fuel supply and public acceptance of nuclear power, writes Tildy Bayar.

Neither issue is exactly breaking news; both have been longstanding concerns for the industry – the latter, of course, especially since Fukushima. But there are several interesting observations that can be drawn from the Symposium’s presentations and panel discussions.

First, fuel supply in itself is not an issue. As Helmut Engelbrecht, chief executive of Urenco, put it: “The industry is more concerned about security of supply than availability of fuel because there always has and will be plenty. We can build our facilities faster than you can build new reactors. We will always be able to serve [our customers’] needs provided we get reasonable return on our investments.”

But security of supply is another matter. The established global fuel cycle supply chain is watching with a degree of concern to see whether fuel cycle facility projects being undertaken or considered by security-conscious established and emerging nuclear countries will eat into their profit margins. As panel moderator Geoff Varley of NAC asked: “Will sovereign fuel cycle facility projects be added to an industry already oversupplied in all sectors? Opportunity or just a threat?”

The sector, of course, is cautious about change. Yoichi Maeda, senior advisor at Mitsubishi, said: “I don’t deny that if a country wants to have a domestic facility for security reasons, that is ok. But you have to think about economics, and existing reliable suppliers are already in place.”

Varley added: “There is very strong due diligence that would have to be done before we see new fuel cycle suppliers.”

And while emerging markets bring opportunities, they also bring uncertainty. Lyudmila Zalimskaya, general director of Tenex, said international suppliers’ access to new markets can be easier “because new countries do not have their own supply infrastructure. But from the other side, these countries’ environments involve a different package of services. This pushes international suppliers to a higher level of their abilities.”

Still, the speakers were uniformly positive about the sector’s future prospects in emerging markets, citing India especially as having great market potential.

The discussions around public acceptance ranged from nervous to heated. Marv Fertel, president and chief executive of the Nuclear Energy Institute, gave a presentation that, halfway through, I began to term the ‘We don’t get no respect’ speech.

Nuclear power is “not necessarily treated the way it should be in liberalized competitive markets”, he said, and governments fail to “recognize all of the valuable attributes [nuclear] brings to a market”.

Nuclear plants “provide grid stability and voltage support but get almost zero value for what they do on that”, while the “other two values not appreciated in a monetary way” are nuclear plants’ contributions to local economies and its potential to step up when, as happened in Fertel’s US home town last winter, “gas prices went up due to the polar vortex and nuclear plants performed exceptionally well because they have fuel in the core.”

But aside from this one reference to policy issues, the discussion around public acceptance focused on how to communicate to the public that nuclear power is safe. After a number of presentations on this topic, I began to wonder whether a lack of public acceptance could be categorized as a business risk, and insured against as policy change and geopolitical factors now are.

From an observer’s point of view it seems that the industry as a whole has exerted tremendous efforts in this area with no observable positive result, although there was one invited speaker, Stephen Tindale, an environmentalist, former head of Greenpeace UK and former anti-nuclear campaigner, who now embraces nuclear as part of a low-carbon energy mix and said that “opposing nuclear power and being an environmentalist are completely inconsistent”.

Again, safety in itself doesn’t really seem to be the problem since pretty much all potential safety issues in nuclear power seem to have been analyzed, strategized and had fixes undertaken where necessary since Fukushima – but, as Tindale put it, “the issue of trust in nuclear is more to do with the industry’s past behaviour than with the technology’s safety.”

This past behaviour has given rise to a negative image in media and popular culture, said Jason Cameron, vice-president of the Canadian Nuclear Safety Commission’s Regulatory Affairs branch.

“Popular culture reinforces a risk bias” where “the stigma around nuclear power creates questions regarding safety for the average person,” he said. “It’s “science versus the 24/7 media cycle”, and it is “difficult for the average person to find out basic information and whose advice [they should] follow.” This has led, in some cases, to people wanting what he termed the “BANANA approach” to nuclear plant construction: “Build Almost Nothing Anywhere Next to Anyone”.

“Making a big deal of safety actually focuses attention on the risk and makes consequences seem unthinkable, makes things worse,” tweeted Jeremy Gordon of the WNA. But unfortunately, despite all of the work done so far, the nuclear industry still needs to address the public’s deep-seated fears: it must make up for our long memories of Fukushima (and Chernobyl, and Three Mile Island) by showing that it has addressed past issues. And it needs to do this while making the case for nuclear power as a vital part of a transition to a low-carbon future.

Phumzile Tshelane, chief executive of Necsa, perhaps put it best: “We [in the nuclear industry] can’t always pretend to be talking in flow charts, using equations, when we talk to our friends or family, or our neighbours. We sound like we’re hiding something,” he said.

“We are the public. The safety of nuclear power is as important to the operator sitting inside the plant as it is to the person sitting outside the fence,” he expained. “We need to be talking to the public in a way that is accessible, and does not hide the facts in gobbledegook.

“We need to be thinking of ourselves as the consumers of what we’re producing, and don’t seek to be defensive. When there’s an incident there’s the potential for a large segment of the population to be affected: you know it’s true, so say yes. But look at the track record and the history and say, should I not be using a nuclear plant because of that?

“When we talk about public acceptance,” he continued, “we look at the public and say ‘Do you accept?’. We should rather look at it from the perspective of what is of benefit to the public, and what key issues would members of public like to know about the technology? The industry should talk about its proud history of safety, without any excuse,” he concluded.


Energy sector relief as Scots vote ‘No’ to independence

Energy sector

Victory for the ‘No’ vote in the referendum on Scottish independence has removed major question marks over the future path of the UK’s energy industry.

On 17 September, Scots voted by 55.3 per cent to 44.7 per cent to remain part of the UK.

Tony Ward, head of power and utilities at consultancy EY, said: “A ‘No’ vote is important for the whole of the UK in that it allows the established dynamic in the energy markets to continue its current course. The UK markets have developed ever-closer and more integrated systems and ways of operating that serve to reduce, then smooth, the cost burden across all users. This also enables investment choices to be made on system-wide merit and help achieve a degree of energy security that can often be taken for granted.”

Ward said that “a major uncertainty has been removed by the vote, particularly for those who were evaluating significant capital investments in Scotland”.

“The Electricity Market Reforms and further developments of the UK’s competitive retail market can now progress while taking the UK market into account as a whole. The un-picking of this fully integrated market would have likely led to the creation of a significant degree of asymmetry in the separated markets, particularly in respect of the allocation of costs and assets. This is now smoothed by the ability to adopt a nationwide approach.”

There had been great concerns that victory for the pro-independence campaign would significantly impact Scotland’s thriving renewables industry.

On the impact on renewables of the No vote, Ben Warren, environmental finance leader at EY, said: “The cost of subsidizing renewable energy has traditionally been spread across the UK”.

He said the result “is positive in that Scotland now won’t be left to pay the lion’s share of subsidies given that this is where most of renewable energy is generated”.

He added that independence would have added further concerns to a market already facing significant challenges. “The renewables sector still has to face the difficult choices that the new contract for difference feed-in tariff regime, the threat of budgetary constraints and further solar subsidy revisions bring, as well as fatigue from constant policy tinkering. And with the current levels of energy market reform underway, the UK’s energy sector was not looking forward to having to digest the impact of an independent Scotland.

“We know how prolonged policy uncertainty can impact the attractiveness and viability of renewables investment and cause project delays.”

Meanwhile, Mark Kember, chief executive of The Climate Group, said: “As a member of The Climate Group States & Regions Alliance, Scotland has been an inspiration for its significant climate achievements and a world leader for renewable power. Last year alone, Scotland received 46 per cent of its electricity from renewable energy. The leadership Scotland shows is exactly what we need from regional governments in tackling climate change, and now that it will remain part of the union we hope that Scotland will continue to set a clear example on the benefit low carbon technologies can provide, both in terms of sustainable resources and economic growth.”

UK Energy Minister Matthew Hancock tweeted: “Delighted by the resounding vote for the union & a proper settlement for England to come. Thank you Scotland”, while Shadow Energy Secretary Caroline Flint tweeted: “Delighted Scotland has voted to stay part of the UK”.

John Cridland, director-general of the CBI (Confederation of British Industry), said the No vote was “a momentous day for our United Kingdom.

“This result will be greeted by a collective sigh of relief across the business community. Business has always believed that the Union is best for creating jobs, raising growth and improving living standards, and welcomes that the people of Scotland want to play an integral role in this internationally successful partnership.”

Keith Parker, chief executive of the Nuclear Industry Association, said: “After the historic ‘no’ vote and commitment to further devolution, Scotland and the rest of the UK must look to the future.

“Nuclear power plays a vital role in Scotland, supplying 46 per cent of its electricity demands. The country is also home to several major nuclear supply chain companies generating nearly 5000 jobs. There are still questions which need to be answered more fully on the future of nuclear power for Scottish homes, business and hospitals. With more powers to be devolved to the Scottish Parliament, the nuclear sector will work with policymakers to address any changes which may arise.”

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